KINGSTOWN, St. Vincent, CMC – St. Vincent and the Grenadines Finance Minister Camillo Gonsalves has warned that reform to the pension and benefit structure of the National Insurance Services (NIS) can begin as early as next year.
Gonsalves was briefing lawmakers on the finding of the 11th actuarial review of the National Insurance Services (NIS) and an independent analysis of the actuarial study conducted by the World Bank’s Reserve Advisory and Management Partnership (RAMP).
The Finance Minister told Parliament that according to the report, NIS reserves are projected to be depleted by 2034 unless reform is undertaken. As such, “the government intends to implement NIS and pension reform beginning in the budget year 2024.”
These changes, he said, would allow the social security agency to be able to continue providing its essential services to the people of St. Vincent and the Grenadines, “thereby avoiding last-minute draconian changes or fiscally imprudent government interventions.”
The 11th actuarial review made 11 specific recommendations for the financial viability of the NIS, which include an increase in the contribution rate to at least 15% — up from 10% — progressively over the next ten years and making NIS registration and payment contributions mandatory for all self-employed and informal sector workers.
The actuarial reviews also suggest considering several options to reduce long-term old-age pension costs, including continuing to increase the pensionable age until age 67 by 2032.
The review also suggests reducing the maximum old age pension replacement rate from 60% to 55%, meaning that rather than receiving 60% of their salary, pensioners would receive 55%.
It also recommends that the NIS discourages “the take-up of early retirement pensions through adjusted benefit calculations or making the pension formula more progressive. That is, instituting a slightly lower pension rate for higher-income people”.
Gonsalves said the World Bank’s RAMP reviewed the actuarial report and strongly recommended that the NIS addresses “the imbalances underlined by the actuarial report” and “follow the actuaries’ recommendations.”
“Importantly, the ramp team goes on to calculate that ‘the recommended reforms of increasing the contribution rate from 10 to 15% between 2024 and 2030, together with pension benefit reform, as detailed in the 11th actuarial report, would postpone the depletion date of the reserves by another 15 years and that would be to 2051,’” the finance minister added.
“The unvarnished analysis before us establishes that a gradual contribution rate increase from 10 to 15% over ten years 2024 to 2033, a change in pension formula to reduce new average pension amounts by reducing the maximum total accrual rate from 60 to 55%, a shift from age pension where pensions are received at a specific age to a retirement pension where pension is paid when you are substantially retired, and a mandatory coverage of self-employed persons would extend the date of reserve depletion from 2034 to 2051.”
Gonsalves told the Parliament that in addition to the potential reforms of the NIS, reforms of the public pension system will also be discussed.
“…reforms of the public pension system to enhance harmonization with the NIS arrangements, including consideration of measures to (1) introduce a mandatory contribution rate for employees; (2) aligning the retirement age of civil servants, with the NIS pensionable age; and (3) limiting the maximum replacement rate from 127% of your pre-retirement salary to about 85% by considering a top up on the NIS pensions.”
Some public servants who currently qualify for a NIS pension to which they contributed and a non-contributory retirement from the central government can receive up to 127% of their salary when they retire.
The government is proposing that they receive a pension amounting to a maximum of 80-85% of their salary.
If the NIS gives 60% as a pension, the government will contribute 20 or 25% from the public pension system.
“This is in line with best practice and similar to designs already in St. Vincent and the Grenadines in the private sector, including many banks and retail organizations,” Gonsalves said.
“These measures would apply to new entrants into the civil service and could significantly enhance the long-term sustainability of the public pension system.,” he told lawmakers.
“Over the next four months, the NIS and the government will continue internal consultations and public outreach to finalize a list of concrete and impactful proposals,” Gonsalves said.
He said the NIS’ finances improved somewhat in the first quarter of 2023, with net losses falling from EC$10.7 million to EC$1.07 million.
“The improved financial performance was attributed to an increase in contribution income, stronger investment performance, slower growth in benefits, and reduced administration costs,” the finance minister said.
He said contribution income for the first quarter of 2023 rose from EC$14.4 million to EC$16.1 million, year-on-year, on the back of strong private sector growth, led by increases in construction, of 7%, transport, and storage, of 7%, accommodation, of 5%, wholesale and retail, of 5%, and manufacturing, of 5%.
Gonsalves said NIS investment income rose from EC$600,000 to EC$4.5 million in that quarter, mainly due to the partial recovery of the international equity sub-portfolio from negative EC$3.3 million to EC$700,000.
“Further, cost containment measures reduced administrative expenses at the NIS from $3.1 million to $2.7 million,” he said, adding that the asset class diversity remains roughly the same as the first quarter of 2022 and roughly in line with the period under the actuarial review, with 28% in cash, 24% in bonds, 9% in loans, 25% in equities and 14% in real estate.
“NIS exposure to the central government is only 11%, well below the prudential limit of 20%. This is also a reduction from the 13% recorded in the 11th actuarial review,” he said, adding, “This limited exposure to the central government is a stubbornly Inconvenient truth or those seeking to craft a false narrative about the government raiding and coffers it is simply not true.
“Nonetheless, despite improving finances relative to the height of the COVID pandemic, the actuarial review is correct in its assessment that improved investment performance cannot outweigh the drag caused by changing demographics and generous design. Reform is an urgent and unavoidable imperative,” Gonsalves said.
and then 